Trader Michael Milano works on the floor of the New York Stock Exchange, Wednesday, Dec. 18, 2024. (AP Photo/Richard Drew) ·The Associated Press
Scotiabank is calling for another strong year for investors in 2025. Analysts see a “synchronized easing cycle” from central banks adding fuel to rising stock indices. That’s despite a potential “uncertainty shock” from Donald Trump’s return to the White House impacting U.S. economic growth and global trade.
“2024 has turned out to be an exceptional year for investors, and we suspect 2025 will build on those gains,” analysts Hugo Ste-Marie and Jean-Michel Gauthier wrote in the bank’s 2025 outlook report.
“Politics and geopolitical tensions are a major source of uncertainty in the outlook, but macro tailwinds should clear the skies and lift risk assets further,” they added. “From an asset mix standpoint, our pecking order is: equities > bonds > cash in 2025.”
Scotiabank says central bank easing from North America, to Europe, and Asia, including China, will be the most important theme of 2025. Chief economist Jean-François Perrault sees the Bank of Canada and Federal Reserve lowering their policy rates to three per cent and four per cent, respectively, by late spring.
“The global monetary easing cycle is well underway. The easing is occurring as inflation cools in many countries and central banks are changing their focus from inflation suppression to inflation stabilization,” he wrote in the bank’s outlook.
“With that comes an express desire by some central banks, including Canada’s, to see stronger growth,” he added. “While this bodes well for equity markets in general, the economic outlook may be held hostage by significant policy as a new direction for U.S. economic policy is set by President-elect Donald Trump.”
Ste-Marie and Gauthier set their S&P/TSX Composite Index (^GSPTSE) year-end target for 2025 at 27,500, about 11 per cent above the current level. They estimate the S&P 500 (^GSPC) will climb to 6,650, up about 12 per cent.
Looking ahead to 2025, Scotiabank’s team of analysts issued some top picks broken down by sector.
“Purchase volumes and store traffic appear healthy. At the same time, we expect continuing signs that the cumulative level of inflation has led Canadians to become more value oriented, with a greater desire for buying on promotion,” wrote analyst John Zamparo.
He expects pharmacy to be the most important growth driver for grocers in 2025. His top pick is Metro (MRU.TO), with a $98 per share one-year price target.
“We expect Canadian oil differentials to remain narrow for the next two to three years due to the excess pipeline egress provided by TMX as well as strong demand for heavy oil,” analyst Cameron Bean wrote.
“We believe the North American natural gas market entered a new phase in early 2020 that will be characterized by higher volatility due to greater global influence over the market and an increased likelihood of large supply and demand shocks.”
Bean’s top Canadian oil-weighted pick is MEG Energy (MEG.TO), with a $33 per share one-year price target. Advantage Energy (AAV.TO) is his top pick in North American natural gas, with a $20 per share one-year price target.
“The big question that loomed over Canadian financial stocks 12 months ago was whether we would see a deep recession or soft landing,” wrote analyst Meny Grauman. “The answer to that question appears to be clear in most investors’ minds. A soft landing, coupled with a series of rate cuts (more in Canada than in the United States), has triggered a broad-based rally across the group – one that we expect to persist into 2025 as economic fundamentals continue to improve.”
Top picks include Brookfield (BN.TO)(BN) with a one-year price target of US$69 on New York-listed shares, Power Corporation of Canada (POW.TO), and Bank of Montreal (BMO.TO). Price targets are $56 per share and $160 per share, respectively.
“The engineering and consulting cohort have been beneficiaries of generational infrastructure stimulus over the past few years complemented by accretive M&A. This has driven multiple expansion and significant share price returns,” wrote analyst Jonathan Goldman. “While we think there is limited room for further multiple expansion, we believe current valuations are justified given a five- to 10-year runway to compound earnings at double-digit rates, which should support commensurate shareholder returns.”
Goldman’s top pick is WSP Global (WSP.TO), with a one-year price target of $279 per share. Analyst Konark Gupta recommends shares of Secure Waste Infrastructure (SES.TO), with a one-year price target of $18 per share.
“We believe the new U.S. administration could tighten trade policies in favour of domestic producers, which would further accelerate nearshoring trends,” Gupta wrote. He says his top pick, TFI International (TFII.TO), has 70 per cent exposure to the U.S. market.
“We expect a highly volatile yet relatively attractive pricing environment over the next 12-24 months for several commodities, despite a highly uncertain global economic climate,” wrote analyst Alfonso Salazar. “In the medium to long term, we continue to expect the emergence of a new commodities supercycle, driven by growing demand from global decarbonization efforts to address climate change, amplified by the impact of severe underinvestment in new production capacity.”
Salazar’s top picks include Teck Resources (TECK-B.TO) with a $75 per share price target, and Vale (VALE) with a US$14 per share price target.
“2024 has been a strong year for gold, with the commodity up about 31 per cent over 2023,” wrote analyst Ovais Habib. “For 2025, we believe macroeconomics (interest rate cuts, high debt levels, and a weakening U.S. dollar), geopolitical uncertainties, and strong central bank buying will be key drivers for bullion.
Habib’s top picks include Agnico Eagle Mines (AEM.TO)(AEM) with a US$103 price target on New York-listed shares, Alamos Gold (AGI.TO)(AGI) with a US$25 one-year price target, and New Gold (NGD.TO)(NGD) with a US$3.50 one-year price target.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist. Download the Yahoo Finance app, available for Apple and Android.
